Season 10 - The second round of fundraising

Episode 2 - Q1 2021-the start of 2022 - The ROSCO roadshow

Romain Payet — Once we’ve chosen our financing model, we have to shop around for ROSCOs — companies that rent locomotives, wagons and passenger carriages — to find one that will agree to finance our assets. In the world of financing, it’s what we call a roadshow.

This is the part of the financing we know the least about, so we decided to seek support in a company called Apex Rail. Not traditional investment bankers, they’re financiers specialising in railways, recommended by Odile Fagot, a member of our strategic committee and a specialist in the sector. We were immediately drawn to Apex Rail because it’s a small, agile team that knows the whole ROSCO market. But above all, it supported FlixTrain in the acquisition of its first fleet, which is about the same size as the one we want to acquire. We also love that they didn’t just work with giants like SNCF and Deutsche Bahn. They have a start-up spirit like ours, which is exactly what we need.

Obviously, we can’t start the ROSCO roadshow without some prerequisites. In collaboration with Apex, we have to establish and/or complete the three documents we’ll need. First, an information memorandum, which explains at some length our positioning within the market, the state of competition, sector figures, etc. Then, the business plan, a much more financial document which looks at how we’ll be able to make money. It includes more than two hundred hypotheses. Finally, based on the previous two, we established a list of ROSCOs likely to finance our project. This is obviously reduced due to the specificities of the project which won’t interest all market players. We won’t address those who categorically refuse to be a passenger, or whose choices we don’t believe we can influence.

Once this list is established, we’ll begin our roadshow. But let’s be clear, it’s not a journey where Adrien, Nicolas and I board a night train to present our project to all the ROSCOs in Europe. Instead, the Apex Rail team will make phone calls to all the lucky ones to find out if they’re interested. There are twenty-five altogether. Twenty are interested and so we send them the information memorandum and the business plan. Once they have that in hand, they will do some internal research to determine if Midnight Trains could fit into their strategy. If this is the case, the next step consists of a presentation of the project by management — Adrien, Nicolas and me — who answers their questions. Beyond that, there are five ROSCOs genuinely interested in entering phase two of the roadshow: the evaluation of the rolling stock.

Nicolas Bargelès — It’s important to understand that ROSCOs are made up of equal parts engineers and financiers, all of whom specialise in rolling stock, from lifespan to depreciation. However, their knowledge of the different market segments, major hypotheses and the future potential is sometimes patchy. Especially when it concerns passenger night transport, and international routes. It’s a niche market from the point of view of these players, whose development has been based on acquiring locomotives for freight traffic.

This is even more true in certain countries we’re targeting, where the opening of regional transport is more advanced than France, in the financing of such trains. What interests them most is knowing if they’ll be able to find profitability by purchasing our trains. However, most rolling stock depreciates over twenty-five years, whereas a standard contract with a company like ours lasts around ten years. So we have to convince them that our model is relevant, but also that if we go out of business in ten years, they will be able to find other operators to whom they can rent these locomotives and carriages.

Romain Payet — Before committing further, the five ROSCOs still in the running want to know more about our future rolling stock. Only problem is, we’re still hesitating between three manufacturers. We hope that the expertise of the ROSCOs will help us make our decision. But it’s a tricky decision because we’ll be adding to the material risk, the risk of carrying passengers, and of not being a public service delegation, which runs the risk of looking like we don’t know what we want. On top of this, these manufacturers aren’t behemoths like Siemens or Alstom. Some are a little more eclectic.

The ROSCOs asked us to visit the factories, but neither us nor them have the resources to send five teams to three European countries. It means we end up choosing our manufacturer and asking them to issue a document defining the economic, legal and operational terms of our collaboration. Once this choice is made, only two ROSCOs remain in the running, because they support our choice and want to visit the factory in Eastern Europe. It’s at the end of this that we’ll be able to make our final choice. Provided they’re both still interested.

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